Germany finally has a leader. Now comes the difficult part of Merz

After a few dramatic and about 10 weeks after the German elections, the largest European economy finally has a leader: Friedrich Merz.

Its ascent is not easy to do. Tuesday, Merz was not elected Chancellor during a first -round vote, an unprecedented event in the modern history of the country. Despite the guarantee of the necessary parliamentary support in a second attempt later in the day, Merz seems to start his somewhat bruised new role.

“This is the lowest possible beginning,” CNBC Carsten Brzeski told CNBC, the world manager of the Ingro macro.

Other observers such as Cyrus of Rubia, chief economist of the Hamburg Commercial Bank, seem less concerned.

“I think that in about a week from a week, no one will talk about it anymore. Instead, people will examine what the government decides and does,” he told CNBC.

Whatever

Some of the challenges include the resolution of the division within the country on issues such as migration, geopolitical tensions around defense and commerce spending, a stagnant economy and keeping the coalition in united and online power.

Germany’s economy will be a level of mind for Merz, having made promises of reforms and new investments, and to have severely criticized the policies of the previous government during the electoral campaign.

For more than two years now, the country has experienced an alternation of economic expansion and contraction each quarter. The annual growth of the gross domestic product was negative in 2023 and 2024. And the last forecasts do not seem to indicate a lot of respite in advance.

This despite the main fiscal ensemble pushed by the CDU / CSU and the SPD during their coalition negotiations, which includes changes in long -standing debt rules to allow more defense expenses and an investment fund of 500 billion euros ($ 567 billion) and climate investment funds.

This species seems at least safe, but questions have emerged on other tax and economic policies, said Brzeski d’Ing.

“I think that the Euro 500 billion 500 billion thing infrastructure package will not be affected and is a matter concluded,” said Brzeski. “All other measures, such as faster radiation for investments or corporate tax cuts in 2028, have become even more uncertain than before,” he added, connecting this to a now increased risk of potential conflicts on the country’s budget.

Franziska Palmas, economist in senior Europe in Capital Economics, also sees the tax package implemented as planned.

“We believe that this will give a significant boost to GDP growth and will bring Germany out of stagnation after six years,” said Palmas at CNBC – but noted that because of apparent dissatisfaction in certain parts of the factions of the coalition, the risks of such a boost being lower or taking more time.

According to Otto Fricke, former member of the Bundestag of the government’s economic democratic party, another key problem affected by Tuesday’s troubles is the confidence of the coalition – and this could prove vital for the government’s economic policy plans.

“The problem really here is at the end, this is the most important question in politics: confidence,” he said, addressing “Europe Early Edition” of CNBC on Wednesday. The German economy needs changes, and quickly, if the goal is to grow, said Fricke.

“Therefore, you need confidence within the cabinet, within the Parliament, to do the legislation quickly.”

The Palmas of Capital Economics stressed the wishes of Merz that his government would be more stable than the previous one, which ultimately collapsed on disagreements on economic and tax issues.

However, after the delicate start of his mandate, “the risk that he will not be able to keep his promise that he will direct a much more effective government without conflict compared to the previous coalition of traffic light has increased,” she said.

But despite the apparent tensions and the increased instability, of the Rubia, of the Commercial Bank hamburg, stressed that, as their joint coalition agreement, the CDU / CSU and the SPD are not in fact not so far politically.

For example, everyone should be able to agree on the need to invest in railways, roads, bridges and other infrastructure through the fund, and a consensus on defense expenses should also be found without “bitter conflicts”, he said.

Thus, while Merz’s first failure on Tuesday was perhaps an attempt as members of the Parliament to teach him a lesson, that should not mean that the new government turns out to be the big change, said Rubia.

“This does not mean and it should not mean that they must refrain from making the necessary reforms with regard to the modernization of the infrastructure, to reduce administrative formalities, in particular with regard to approval processes for construction work, wind farms and electrical networks, improve digitization processes and take measures to reduce the shortage of labor,” he said.

“I have little doubts about this that the new government will be able to implement its major political objectives”